North Dakota’s Frontier Energy Group diversifies support services through acquisition of established companies and hopes to avoid industry boom or bust cycles
To minimize financial risk, shrewd investors avoid putting all their eggs in one basket. Watford, N.D.-based Frontier Energy Group LLC follows a similar strategy in the world of oil and natural gas field services by pursuing a strategy of diversification through acquisition.
In rapid succession since mid-2009, the 26-year-old company has completed seven acquisitions that significantly broadened its support services capabilities for the oil and natural gas industries, primarily in North Dakota, Colorado, and California.
Despite fast growth, the company strives to maintain the family-oriented, homegrown atmosphere that helped each of the companies it acquired continue to thrive. It’s a delicate balancing act, but one the company intends to maintain, says Dan Eberhart, chief executive officer.
“We’re a collection of local companies, not a giant conglomerate,” he says of Frontier, which sells and installs wellhead equipment; rents and installs frac trees and provides wireline, e-line, slickline, pressure testing, hot-oil services, and oil field fabrication. Its business base includes about 250 customers from 19 locations in Colorado, Nebraska, North Dakota, Montana, Utah, Wyoming, and most recently California.
“It’s been difficult at times to manage the growth, especially when it’s coupled with the integration of our new acquisitions into Frontier,” Eberhart says. “But an array of services makes our company more balanced.
“More and more often, oil companies are looking for one-stop shopping at diversified and stable oil field service companies, as opposed to mom-and-pop operations,” he continues. “They want companies with more formal safety programs, more access to technical drawings and technical support and the longevity and ability to ride out economic cycles.”
In addition, Eberhart believes it’s important to limit exposure to boom-and-bust cycles by establishing a good mix of oil and gas field work, as well as serving both drilling and production customers. Drilling-related services provide a strong revenue stream in boom times, while production-related services – akin to maintenance services – generate revenue during good times and bad.
“Companies need maintenance services – such as hydrotesting and hot-oil service – whether it’s a boom time or bust,” he points out.
Frontier’s two core companies are Frontier Wellhead & Supply, Inc., headquartered in Watford City, ND, and Cable, Inc., based in Sterling, Colo. Established in 1986, Frontier Wellhead supplies new and used wellheads and spare parts, and also offers equipment refurbishing and storage services. Founded in 1948 in Oklahoma, Cable provides customers with slickline and hydrostatic-testing services. Last month Cable acquired Spicer Wireline Inc. in Bakersfield, California, adding a new e-line service.
The bulk of Frontier’s business is coming in North Dakota and Montana, where horizontal drilling has made the prolific oil and gas plays in the Bakken Formation in the Williston Basin a hotbed for drilling activity. Eberhart says services the company provides in the basin generate about 65 percent of the company’s gross revenue. The rest stems from oil and gas fields in the Denver-Julesburg Basin in northeastern Colorado and southeastern Wyoming; the Piceance Basin in western Colorado; and the Uinta Basin in Utah, and the San Joaquin in California.
EXPANSION THROUGH ACQUISITION
Before he established Frontier by purchasing Frontier Wellhead in 2008, Eberhart served as the vice president of acquisitions at an oil field services company based in Texas. Prior to that, he held the same position in an oil services division of an Arizona company.
“I saw a tremendous amount of opportunity in the Williston Basin,” he says, explaining why Frontier Wellhead was an attractive acquisition target. “The company had a unique history and good market share – a good platform on which to build a larger and more diversified oil field services company.
“There are only so many independent wellhead companies of that size out there,” he continues. “For an independent, we have a pretty large footprint in the Williston Basin.”
In July 2009, the company bought Kodiak Stack Testing, a smaller, family-owned business in Williston, N.D. Renamed Frontier Pressure Testing, Inc., the company’s services – which include stack testing, slot recovery and hydrotesting – mesh well with Frontier Wellhead’s capabilities, Eberhart says.
Later in 2009, Frontier acquired Cable. In November 2010, it bought Hanson Hot Oil, founded in 1984 in Watford City and now named Frontier Hot Oil Inc. In January 2010, Frontier bought Western Wellhead’s location in Grand Junction, Colo., and merged it with Cable. A year later, Frontier purchased Luft Machine & Supply Inc., founded in 1976 in Sterling, Colo. The machining and fabrication firm now is called Luft Machine, Inc. In early April 2012, Cable aquired Spicer Wireline, which began in 1989 in Bakersfield, Calif.
As its name implies, Frontier Wellhead mainly provides wellhead support services.
“Our business is about managing a high head-count of technically proficient but blue-collar workers, and managing an inventory of iron, while our customers worry about where to drill,” he explains. “It’s very similar to the construction industry, where you have a project manager and specific subcontractors that possess the iron and the bodies.
“If you’re building a mall, the general contractor has project-management expertise, but work is actually done by subcontractors,” he continues. “In our world, we’re the subcontractor. It’s all about managing the people and managing the inventory … when our customers stop drilling, they don’t want an 80,000-square-foot warehouse filled with iron, so we do it instead.”
To provide top-notch customer service, the company relies on a large fleet of newer equipment that includes more than 100 vehicles. There are 20 hot-oil trucks outfitted in-house by Luft Machine, 20 slickline trucks made by either Eclipse Wireline or Energy Fabrication; 30 Chevrolet pickup trucks, 30 Dodge pickup trucks; about 50 pressure-testing trailers, mostly made by Temco and Walton Trailers; and six grease trailers made by Mirage Enterprises.
MODERN EQUIPMENT COUNTS
Eberhart believes in buying new, durable and adequately powered equipment to minimize downtime and improve productivity.
“At Frontier Wellhead, our entire fleet is less than 24 months old,” he says. “These guys depend on equipment a lot. You’re in remote areas, and work in a harsh environment. The last thing you want is an underpowered truck or underpowered crane – you want dependable equipment.
“Having quality, late-model equipment designed specifically for the job we have to do is absolutely critical,” Eberhart adds. “You can lose a multi-million dollar account if you don’t have good equipment. Oil companies are very results oriented … they’re not interested in waiting for you to redeploy other assets because your original assets couldn’t get the job done. That doesn’t help you get the second call.”
Luft plays a small but critical role in the company’s operations with the ability to fabricate hot-oil, hydrotesting or slickline rigs, Eberhart points out.
“It’s a case of trying to do a vertical integration – use our own capital expenditure budget to build things,” he says. “During boom times, it’s a standard problem in our industry … you need a new unit, and even if you have money in hand, delivery is nine to 15 months off. The busier things get, the harder it is to get equipment.
“So if we have someone who can do it in-house, we can crunch our time-to-market by about half,” he continues. “This also gives us the flexibility to reprioritize fabrication as we need it.
“It’s not a big part of our overall business,” he adds. “But from a strategic point of view, it’s kind of a safety valve on the way up. If oil gets up to $150 a barrel, we at least can still get some things done.”
Frontier is doubling the size of the Luft fabrication facility, and plans to expand even further if demand increases.
KEEP IT GOING
Eberhart sees continued growth for Frontier. He expects the Bakken play to remain viable for the medium term, and predicts that oil and natural gas activity in the Niobrara shale play in the Denver-Julesburg Basin will take off in the next two years.
“Our growth plans include more acquisitions, but we also intend to focus more on organic growth going forward, and plan to spend millions of dollars buying new equipment, such as trucks,” he says. “While more vertical integration may be necessary, our business will also continue to build out our oil field services for exploration and production companies.”
And continue to avoid putting too many eggs in one basket.